Category Archives: TARP
Wells Fargo used 2009 as a good time to review its national footprint and with Wachovia in its belt used the time to grow its retail presence and cement a leadership position that now threatens BofA directly
Also a couple of tricks of the trade, kept it more profitable than most in its competitor set, using the now derogatoy ‘Proprietary Trading’ desks to hedge with mortgage securities
In investor-speak, that means Wells Fargo, which has 6,600 branches in 39 states, purchased investments that pay off when short-term rates fall–which is exactly the action central bankers have taken to keep credit flowing during the financial crisis.
Wells Fargo reported a profit of $2.82 billion or 8 cents a share for the 4th Quarter up 92 cents a share from the year ago results. The bank reported revenues of $88.7 billion for 2009, producing $12.7 billion in income and the 4th quarter results were well ahead of expectations
In the fourth quarter, Wells Fargo originated $94 billion in mortgages while Bank of America originated $84 billion, up sharply from the volume of mortgages they made in the fourth quarter of 2008 at the depths of the financial crisis. According to trade publication National Mortgage News, the two banks accounted for 40% of new mortgages in the third quarter of 2008, the latest period for which information is available. They have similarly dominant positions in the servicing of mortgages.
After this, the war is now heavily tilted in favour of the west coast headquartered Wells Fargo, with Citi struggling to keep up with both. Wells Fargo was never under the pay czar’s administration and despite a 47 cent loss from a $25 b repayment in the fourth quarter, did not tailspin like the other two
Paul Volcker has new risk limits
After the treasury induced reforms that were more a laundry list of all measures, with existing internal controls at banks pushed into the open, in the next round against criminal misuse of the monetary and fiscal basis, Obama leaned towards Paul Volcker to introduce risk based limits for the Treasuries at commercial and investment banks. Goldman Sachs has already brought leverage down to 4.42 times net worth during the upheavl of 2009.
In an interview with ABC on Wednesday Mr Obama characterised the move by saying that the administration was about to get into a “big fight with the banks.”
“We’ve got a financial regulatory system that is completely inadequate to control the excessive risks and irresponsible behaviour of financial players all around the world,” he said.
“People are angry and they’re frustrated. From their perspective, the only thing that happens is that we bail out the banks… We’re about to get in a big fight with the banks.”
An administration official on Wednesday said the plan – in discussion for the last couple of months – was born out of a need to “cut down on excessive risk taking”.
The announcement is likely to stop short of the return to a forced separation between riskier investment banking and the utility functions of retail and commercial banking that was enshrined in the Glass-Steagall Act.
Goldman Sachs – which runs a large proprietary trading business and which reported stronger than expected fourth-quarter profits on Thursday – will be watching the details closely, but the measures are more likely to threaten institutions whose operations are large and span commercial and retail operations as well as trading for their own benefit.
“While the financial system is far stronger today than it was a year one year ago, it is still operating under the exact same rules that led to its near collapse,” said President Barack Obama at the White House.
“My resolve to reform the system is only strengthened when I see a return to old practices at some of the very firms fighting reform; and when I see record profits at some of the very firms claiming that they cannot lend more to small business, cannot keep credit card rates low, and cannot refund taxpayers for the bailout. It is exactly this kind of irresponsibility that makes clear reform is necessary,” Obama added.
The proposal aims to deter commercial banks from becoming so large that they put the broader economy at risk and distort normal competitive forces
BofA is doing well if for the fact that it has already returned all government monies and has provisioned another $1.6 billion for Credit Losses
As a new habit, we will continue to use the NY Times summary ( No it’s not Scott :) )
Even as the nation’s largest financial institutions report whopping profits from their investment banking units, those with major consumer lending portfolios continue to bleed money as unemployment and a weak housing market hamper people’s ability to repay their debts.
On Wednesday, those losses posed a fresh threat to Bank of America, which reported a fourth-quarter net loss of $5.2 billion, or 60 cents a share, compared with a net loss of $2.4 billion, a year earlier. Analysts surveyed by Bloomberg had expected a loss of 52 cents a share.
For the year, the bank lost $2.2 billion or 29 cents a share compared with a profit of $2.6 billion or 54 cents in 2008.
The bank, which acquired Merrill Lynch in 2008 at the height of the crisis, said its total assets soared to $2.4 trillion at the end of 2009 from $1.9 trillion a year earlier.
via BofA losses
The rise in 2009 total assets is good, the fourth quarter loss is just $194 million after TARP payback but overall the card portfolio ( yes, MBNA as we knew it) is by itself $4.9 billion and total write downs have risen to a huge $33 billion from less than half the amount for 2008. Also, BofA and Wells Fargo tomorrow will not have the luxury of international business anymore. However, Wells Fargo is competitive and profit-making. Without HHI, Moynihan would probably continue in a state of suspended thinking and BofA must suffer in 2010 as a result. the ML acquisition is not bringing in ny benefits with top executives walking out and global results affected by well Merrill Lynch.
Bank of America is good at retail banking and even traditional Commercial Banking however, and its trained , much prized employees could still show Wells Fargo a thing or too.
Andrew Sorkin at NYtimes’ Dealbook just updated below
Update | 1:12 p.m. MetLife has emerged as the lead bidder for the American International Group’s Alico life insurance unit, people briefed on the matter told DealBook, as A.I.G. seeks to sell off the unit to help repay its $182 billion in government aid. The February offer was a good 25% lower at $11 billion
[picapp align=”left” wrap=”true” link=”term=aig+building&iid=4269881″ src=”8/4/c/3/PicImg_AIG_gives_company_2d16.JPG?adImageId=9298971&imageId=4269881″ width=”234″ height=”156″ /]Under the terms being discussed, MetLife would pay about $14 billion to $15 billion for the A.I.G. business, these people said. A.I.G. has said that in a disposition of Alico, about $9 billion of the proceeds would go toward repaying the government’s lifeline.
A deal for Alico is still two to three weeks away, these people said, cautioning that negotiations are ongoing and may still fall apart. MetLife and A.I.G. held talks about a potential sale of the unit before, only to fall apart over price.
Alico services 19 million customers in 54 countries with a government interest of $9 billion , while the IPO candidate AIA based in Asia is the other new Life insurance entity with a $16 billion Govt interest i.e. a $20b equity capital base. Reuters story here
The Alico and AIA book together make up the $600b in investment assets with AIG and a $14 billion price tag should turn in a neat book profit and cash for returning the govt liabilities of $180 billion. The AIA IPO will be a further $8 billion and has waited for Benmoshe and/or Greenberg to complete the Alico deal.
P.S. We are not mentioning the ink on N Y Times to Alico that still links to an Alco inc. in Agribusinesses, but really the way people disrespect paper and newspaper, it’s funny, rofl..
Also, in the mean time, Bernanke has stepped in to try and clear his name:
Bernanke, Hoping to Quiet Critics, Seeks Review of Fed’s A.I.G. Bailout By THE ASSOCIATED PRESS
[picapp align=”right” wrap=”true” link=”term=AIG&iid=6809696″ src=”0/f/f/7/Neil_Barofsky_testifies_ccc9.JPG?adImageId=9298931&imageId=6809696″ width=”234″ height=”156″ /]The $182 billion rescue has sparked public outrage and demands in Congress for more information about the lifelines, beginning in 2008, provided to the company.
Who brought the house down?
Hank Greenberg in an apparent bid to recover AIG’s golden goose from the two year hiatus in economic activity, remembering his last coherent version of 2007 here:
Greenberg blamed new standards for credit-default swaps — pushed by Goldman or Deutsche Bank AG, he said — and subprime, housing-backed derivatives sold and then shorted by Goldman as contributing to AIG’s collapse
This is excerpted from a short note on Bloomberg here
Also, in case you are wondering, no we do not plan this effort to grow into something as bg as the Business Week BX..pretty cool stuff, eh!
Blankfein not stepping in yet, means Greenberg has another couple of hits at it..and his best chance is if he gets a closed door session behind the curtains..write in
Meanwhile Blankfein got a vote down from the Financial Crisis Inquiry Commission
Lloyd Blankfein, the head of Goldman Sachs Group Inc., failed to own up to his firm’s role in selling mortgage securities that helped trigger the global credit crisis, said the chairman of the panel investigating the financial meltdown.
“Mr. Blankfein himself never admitted that there was any responsibility of Goldman Sachs to make sure the products themselves were good products,” Philip Angelides, chairman of the Financial Crisis Inquiry Commission, told reporters after a hearing in Washington today. “That’s very troublesome.”
Blankfein had just explained things too simply for those who expected a sobbing recalcitrant kneltdown humbug in every witness to the state, where they sat happily with the same Greenberg, prompting him to spend $44m on a weekend layover with his team among other things
2009 was the year of the stimulus for the US. Though the Capitol talked mostly only about stimulus in terms of funds for highways and on setting up of recovery.gov, We started taking notice by June that indeed it was hard to track and hard to estimate..a lot of state and some police projects were awarded at the level of county and job savings ascribed to each to get to recovery.gov. Not entirely accurate but definitely a notch or two better than any other spending program i know. The rest of the jobs program will be best utilised probably by the same jobs..new roads, highways that needed even just guard rails, railway infrastructure.
In February, Obama made whistle-stop tours and exhorted the people to see how much they needed these highways and bridges, and how these were unfinished business:
Mr. Obama is proposing what he says is the largest increase in infrastructure spending since President Dwight Eisenhower created the Interstate Highway System in the 1950s.
“We will invest more than $100 billion and create nearly 400,000 jobs rebuilding our roads, our railways, our dangerously deficient dams, bridges and levees,” he said.
The president said funding infrastructure projects will also help create jobs in other areas of the economy. He specifically mentioned the Caterpillar company, which makes much of the heavy equipment used in road projects. Caterpillar recently announced more than 20,000 layoffs.
“And today, the Chairman and CEO of Caterpillar said that if the American Recovery and Reinvestment Plan passes, his company would be able to rehire some of those employees,” he said.
By July, we were comparing dollars at each city:
The NY Times story here was obviously received well because of the graphics and the comparative data, much of which may need to be reworked now. A look at recovery.gov shows 40-45% of the funds being drawn by county programs such as the 11921 awards in California, mostly grants and around 10% ($1.3 billion ) in contracts, going to police stations buying LCD Flat screen TVs and Crowd Control System upgrades, waste water collection systems, increase health center services and presumably the roads, bridges and the highways.
Out of the $158.7 billion awarded ( 58%) 13% has been received and more can probably be done now in receiving those funds and working out what is wrong with the process.
Nonetheless, many in the developing world and even Europe could also use the recovery.gov example to start cleaning the Augean stables of public works. Well begun is half done. But with only 12000 jobs related in Arizona and jobs being reported in fictional districts, well..someone needs to figure out what is wrong and fix it. Similarly Texas has only reported 20000 jobs created and the country as a whole is already reporting 600000 jobs created by the stimulus..obviously not going to match with the rising unemployment numbers..and i haven’t heard from any of these folk on twitter..strange?
In California, almost 45% has been allocated by the Department of Education ( 8 out of 18 billion ) and more than 15% to the Department of Transportation – Have people really seen these half a million jobs making a difference? Have these funds to school districts saved the schools or the teachers? There however the reports are still missing, probably dwarfed by the enormity of the task involved
An example of the agency wise allocation is in the included screen grab for Alabama on the right. It is a great time for people at these agencies to get back with the results. America needs it before going on another joyride with public funds. If you go by these statistics the journos at Reuters have done a pretty ‘funny’ piece with the stats
The second stimulus program may just be going the wrong way without a detailed success/failure report on the first one.
The new Jobs program
The “Jobs for Main street” , Whitehouse’s own repartee to the Wall street cats, is equally unrepentant getting another $40 billion for Department or Transportation, to teach us the ‘new deal’ all over again. The ARRA year has gone by and we are still thinking about another set of roads that will be up in ‘120 days’. I thought the overwhelming majority passed it because it was creating jobs? Especially now with the shadow inventory showing, it is time to tread a little cautiously and on sure footing not ‘sidings and tarpools’ The ARRA bill already has 7886 transportation projects underway.
An example of others who could have got the money is below from The Huffington Post
Demand for high-speed rail funding has well exceeded the expectations that existed when the recovery bill was signed last year. Currently, there are close to $60 billion in project applications from more than 30 states competing for the first $8 billion in federal high-speed rail funding, which will go out in a few months. Domestic and foreign investors and private industry have taken notice of the government’s initiative and the sector has exploded over the last few months, providing hope for new employment that can offset the massive losses in the automotive industry. All eyes are on Congress to see if they will follow through on the initial down payment in their next major transportation spending bill.
Jobs are being lost every month even two years after the recession began. While the number has stopped growing very fast, the number of jobs lost is growing every month without fail. These businesses cannot just wait for banks to start lending, and pretty soon we are going to be out of money to print. We were losing more than 600,000 jobs every month just a few weeks back. This recovery will take much longer than in the Asia and Latam markets. The unemployment rate is still above 10% even after November showed up a huge improvement to just 11000 lost jobs ( just Kentucky lost 5000 out of this!) 15.4 million are still looking for work hopelessly stuck with a lasting unemployment with even the limited foreign worker visas going unrequited in this situation. The long term unemployed, looking for work for more than 6 months are a good 38.3% of the unemployed, another record for America.
Even as dismal numbers from the loan modification program caused an extension of the program till October 2010 ( see Geithner extends TARP) the latest shadow inventory nos ( detailing foreclosures shocked the nation with 1.7 million available for sale from foreclosures. St Louis got an award for 800 modifications to save homes from foreclosure! There seems to be no comparison between the two figures, and more is required than depending on just road construction to make new jobs
Probably some of the economists at Obama and Biden’s offices are already at work untangling the confusion of the stimulus and getting ready to tell us what has worked. I think it’s time.
Goldman Sachs’ earlier bonus component that averaged $700,000 per employee for this year is likely to be drastically revised. Initial reports suggested a 5 year stock purchase plan but the exact structuring is likely to throw up even more surprises as the government makes agreeing noises to the new compensation plan. France joined Britain in imposing a supertax, but the supertax by itself is unlikely to refund governments that are out of pocket..Immediate target for govt. failures and restructuring Portugal, Italy, Ireland, Greece and Spain. Italy and Ireland are yet to get notice from S&P or Fitch ratings divisions for the country debt/risk downgrade.
Also, the Commercial RE cost is likely to rack up over $225 billion and the US stimulus funds are likely to attempt more foreclosure finance having achieved only 4% till date. These may not affect bonuses but are likely to keep the government from allowing all its ‘equity’ in Citi, BofA and others to be paid off.
However, this partnership between governments and banks is also likely to bear some fruit in the tight infrastructure financing space despite the step up from private equity and ETFs
Bowing to calls for restraint in tough economic times, Goldman said that its most senior executives would forgo cash bonuses this year. Instead, the 30 executives will be paid in the form of long-term stock — an arrangement that means they will not get big year-end paydays, but one that could turn out to be enormously lucrative if Goldman’s share price rises over time.
The move is meant to address concerns that bankers and traders in the past benefited from short-term performance. The shift at Goldman locks up the executives’ rewards for five years and enables Goldman to claw back the bonuses in the event the bank’s business sours.
Goldman did not say how much it would pay the executives, suggesting the bank would continue a practice — widely followed in investment banking — of allocating roughly half its annual revenue for compensation. While their bonuses will be paid in long-term stock, the payouts are likely to be worth many millions of dollars.
Treasury Secretary Timothy Geithner announced Wednesday that the administration will extend the government's financial bailout program until next fall.
In a letter to House and Senate leaders, Geithner said the extension is “necessary to assist American families and stabilize financial markets.”
Money from the $700 billion taxpayer-funded bailout program has helped rescue big Wall Street firms, auto companies and others. That's angered many Americans, who feel the government hasn’t provided them with relief from high unemployment and rising home foreclosures.
Geithner said the Troubled Asset Relief Program that Congress passed in October 2008, will be extended until Oct. 3, 2010. He has the authority to extend the TARP simply by notifying lawmakers.
“The recovery of our financial system remains incomplete,” Geithner told lawmakers. “And, near-term shocks to that system could undermine the economic recovery we have seen to do.”
The Treasury secretary said new commitments bankrolled by the bailout fund will be limited to three areas next year.
One focus is stepping up efforts to curb record-high home foreclosures, a move necessary to stabilize the housing market and support a lasting economic recovery.
Another will be providing capital to small banks, which play a crucial role in providing credit to small businesses – normally a leading engine of job creation. But small banks have been weighed down by problem commercial real estate loans, which has made them reluctant to lend and hurt the ability of small businesses to expand and hire.
In a third area, Geithner said the government may boost its commitment to a program aimed at sparking lending to consumers and small businesses. Run by Treasury and the Federal Reserve, the Term Asset-Backed Securities Loan Facility, or TALF, started in March.
Geithner said he didn’t expect any new commitments to the TALF would result in additional costs to taxpayers.
zyakaira notes: Unfortunately with the press taking different sides, the timeline of the crisis and the stimulus and even things such as the healthcare bill are very difficult to make out sometimes. Such crisp notices keep america alive and NPR should get kudos, visitors and continuous financing for the enabling work they do in processing insight and accuracy too. i have also recently become a fan of ‘Wait, Wait .. don’t tell me’ which takes up matters after my own heart for the American people and in a fun way too in front of live audience. Radio is and must go on.
The chancellor of the Exchequer, Alistair Darling, announced a one-time tax on bank bonuses Wednesday, part of the government’s effort to shore up the still-weak British economy.
Banks will be charged a 50 percent tax on 2009 bonuses of more than £25,000, or $40,800. It will be imposed on the pool of bonuses paid by a bank, rather than individual payments, and it will be paid by the bank — not by the recipient of the bonus. It will take effect immediately and will affect banks’ 2009 profits.
The levy represents the most direct attack on bank bonuses anywhere in the world. All banks in Britain – including the London-based subsidiaries of foreign banks — will be affected, whether they took government funds or not.
“Last year banks made £80 billion in losses,” Mr. Darling said during a pre-budget speech to Parliament that was frequently interrupted by howls of protest from members of the opposition Conservative Party. “But if they insist on paying substantial rewards, I am determined to claw money back for the taxpayer.”
The tax measure was the highlight of a push by Mr. Darling to persuade voters in Britain, as well as investors at home and abroad, that the Labour Party has the ability to tackle Britain’s budget deficit, which at 13 percent of gross domestic product is among the highest in Europe.
In his speech, he said his government aimed to more than halve the deficit by 2013 through tax increases and sharp spending cuts.
His strong words on cutting the deficit come against a backdrop of increasing investor unease about the ability of governments everywhere to address deeply imbedded debt problems.
In Greece, where a new Socialist government is struggling to prove it is serious about reducing a deficit that in proportion to its economy is similar to Britain’s, the cost of insuring Greece’s sovereign debt continued its recent rise Wednesday.
The same was true in Dubai, where there is an increasing fear that other government-controlled entities beyond the troubled conglomerate Dubai World will have to restructure their debts.
Caulkers are Green?
If you hated Obama administrations climate Change plan, America’s denizens could soon put you in a minority. Because Obama has found a way to spend the extra cash he saved from TARP ( see O’nomics:wow-it-might-add-up-advantage-zyaada/) I have been unable to catch this anywhere else except our Time Warner scoop-a-thon CNN Money yet, but it is a valid program after the unprecedented success of Cash for Clunkers that kept erstwhile and current homeowners busy in August, September and October
President Obama proposed a new program Tuesday that would reimburse homeowners for energy-efficient appliances and insulation, part of a broader plan to stimulate the economy.
The administration didn’t provide immediate details, but said it would work with Congress on crafting legislation. Steve Nadel, director at the American Council for an Energy-Efficient Economy, who’s helping write the bill, said a homeowner could receive up to $12,000 in rebates.
The proposal is part of the President’s larger spending plan, which also includes money for small businesses, renewable energy manufacturing, and infrastructure.
We know energy efficiency “creates jobs, saves money for families, and reduces the pollution that threatens our environment,” Obama said. “With additional resources, in areas like advanced manufacturing of wind turbines and solar panels, for instance, we can help turn good ideas into good private-sector jobs.”
The program contains two parts: money for homeowners for efficiency projects, and money for companies in the renewable energy and efficiency space.
The plan will likely create a new program where private contractors conduct home energy audits, buy the necessary gear and install it, according to a staffer on the Senate Energy Committee and Nadel at the American Council for an Energy-Efficient Economy.
Big-ticket items like air conditioners, heating systems, washing machines, refrigerators, windows and insulation would likely be covered, Nadel said.
Consumers might be eligible for a 50% rebate on both the price of the equipment and the installation, up to $12,000, said Nadel. So far, there is no income restriction on who is eligible. That would mean a household could spend as much as $24,000 on upgrades and get half back.